Canadian aerospace profits expected to drop
Conference Board predicts lower sales
Canadian aerospace industry profits will decline through the end of 2013 because of a slowdown in new aircraft orders, uncertainty in Europe and a six-month delay in Bombardier’s CSeries aircraft, the Conference Board of Canada said Wednesday.
The think-tank expects industry profits will decline 30 per cent by the end of 2013 from the recent high of $710 million set in 2010.
Pre-tax earnings are expected to fall to $504 million next year before nearly recovering to this year’s level of $614 million by 2017.
Fierce competition and the strength of the Canadian dollar contributed to slim industry profit margins.
Conference Board senior economist Maxim Armstrong says the industry’s outlook mirrors global economic trends.
“The aerospace industry is still coping with the lingering effects of the 2008-09 recession,” Armstrong wrote in the latest edition of the board’s Industrial Outlook.
“While new orders indicate that the industry is showing signs of recovery, the financial turmoil in Europe is creating uncertainty and making the comeback difficult.”
Industry revenues surged last year but are expected to experience a correction in 2012.
Lower sales in the first half of this year are expected to push industry revenues down 5.4 per cent to $14.9 billion this year, before rising each year to reach $18.5 billion in 2017.
The improved outlook in 2015 and beyond coincides with the impact of Bombardier’s CSeries commercial jet. The first test flight of the smaller version of the plane has been pushed back to next June.
The plane is slated to enter into service a year later, followed by the more popular larger model by end-2014.
It will then take a few years for production to reach its full potential.
“Although there are some orders for the aircraft booked, some airlines are waiting until successful (first test) flights have been made and orders delivered before they take the plunge,” he wrote.
Bombardier has received orders and commitments from 13 customers for 352 of the 110- to 149-seat plane that will be assembled north of Montreal.
Intense spending on research and development has allowed aerospace employment to remain resilient despite lower production.
Pratt & Whitney has allocated $1 billion to develop new engines to be used on the CSeries, while companies such as landing gear-maker Heroux-Devtek is designing equipment for several aircraft types including the Learjet 85.
Armstrong said modest growth in global demand for air transportation is delaying the need to expand capacity or to replace existing aircraft.
U.S. economic growth remains slow but an improvement in the financial position of U.S. companies should lead to increased demand for business jets, the Conference Board said.
Bombardier is seeing the benefits as it recently received large orders for its business aircraft from NetJets and Europe’s VistaJet.
The NetJets deal for 125 firm orders of three different jet models and options for 300 more aircraft is valued at $9.5 billion. VistaJet’s order for up to 142 planes at $7.7 billion will see deliveries begin in 2014.
Passenger demand has been “modest at best” in North America, stronger in Europe despite the recession and growing in emerging markets that will be the big buyer of aircraft for years to come.